Abstract
World economic development is associated with growing food consumption. Agricultural land, however, suffers from over-exploitation and is subject to environmental shocks which are projected to become more severe due to climate change. We present a stochastic model of a dynamic economy where soil is an essential input and natural disasters are sizeable, multiple, and random. Expansion of economic activities raises effective soil units but contributes to an aggregate loss of soil-protective ecosystem services, which exacerbates soil degradation at the time of a shock. We provide closed-form analytical solutions and show that optimal development is characterized by a constant growth rate of stocks and consumption until an environmental shock arrives causing all variables to jump downwards. Optimal soil management consists of spending a constant fraction of output on preservation measures, which is an increasing function of the shocks hazard rate, degradation intensity of agricultural practices, and the damage intensity of environmental impact. We derive the optimal propensity to save and discuss the impact of human pressure and risk exposure on soil and output. We also discuss quantitative impacts of climate change on optimal soil management.
Highlights
If households do internalize the externality, at least to some extent, their fertility decision will take into account the “human stress” effect on ecosystem and will result in a lower equilibrium fertility rate, as compared to the case without internalization, or even in a stabilization of population at a constant level. The latter case would correspond to our initial framework. In the former case, we conjecture, the endogenous fertility rate is closely related to the stochastic growth rate of S: assuming that a household size can adjust instantaneously, the population size increases at a constant rate in between shocks and drops when a shock occurs as households immediately respond to the scarcity of S
This section discusses the impact of event frequency on development, especially when countries are heterogeneous with respect to their exposure to environmental shocks
The soils become vulnerable to random environmental shocks which lead to soil degradation
Summary
Rising food demand and growing risks of large-scale land degradation suggest bringing back to macroeconomics what is the “nearly forgotten resource” – soil. It is estimated that by 2050 agricultural production will have to rise by 70% to meet the needs of growing world population (FAO, 2009). already nowadays about one third of all soils are degraded and the global amount of productive land per person could in 2050 be only one-fourth of the level in 1960,. Farmers are able to respond to risks in an optimal manner Institutional deficiencies, such as incomplete land tenure systems as well as negative externalities from individual farming on aggregate soil protection, cause suboptimal development. Labrière et al (2015) empirically estimate the impact of contour planting, no-till farming and use of vegetative buffer strips on the reduction of soil erosion and find enormous potentials They conclude that the government or natural resource managers can help decrease soil losses on a large scale. Food production and security are global concerns but soil losses are especially acute in arid, semi-arid, mountainous, or tropical regions where the lack of protection may cause substantial deterioration in soil quality and reduction in yields These types of environmental problems in production and food provision and their link to general economic development warrant a thorough investigation from a theoretical perspective
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